10-QPeriod: Q3 FY2003

UNITED PARCEL SERVICE INC Quarterly Report for Q3 Ended Sep 30, 2003

Filed November 14, 2003For Securities:UPS

Summary

United Parcel Service Inc. (UPS) reported strong financial performance for the third quarter and the first nine months of 2003, reflecting solid revenue growth and improved profitability across its segments. Revenue increased by 7.2% to $8.31 billion for the quarter and 6.7% to $24.55 billion year-to-date. This growth was driven by increased package volumes, particularly in international markets and the ground segment, along with effective yield management and strategic price increases. The company demonstrated improved operational efficiency, with consolidated operating profit rising significantly, especially in the International Package and Non-Package segments. This performance was bolstered by growth in UPS Supply Chain Solutions and strategic initiatives. UPS also reported robust cash flow from operations, which, along with existing credit facilities, provides ample liquidity for ongoing operations and future investments. While facing some legal proceedings and the impact of new accounting standards, the company anticipates no material adverse effects on its financial condition.

Key Highlights

  • 1Total revenue increased by 7.2% to $8.31 billion for the third quarter and 6.7% to $24.55 billion for the first nine months of 2003 compared to the prior year.
  • 2Operating profit saw a significant increase of 20.7% to $1.15 billion for the quarter and 8.4% to $3.17 billion year-to-date, driven by strong performance in International and Non-package segments.
  • 3International package revenue surged by 15.7% for the quarter and 19.5% year-to-date, fueled by robust export volume growth and improved revenue per piece.
  • 4The Non-package segment, including Supply Chain Solutions, also showed strong growth, with revenue up 6.2% for the quarter and 11.1% year-to-date, and operating profit increasing significantly.
  • 5Net income for the third quarter rose by 27.5% to $739 million, and year-to-date net income increased by 21.6% to $2.04 billion.
  • 6Diluted earnings per share (EPS) improved to $0.65 for the third quarter and $1.80 for the nine months, up from $0.51 and $1.48 respectively in the prior year.
  • 7The company maintained strong liquidity with $4.1 billion in cash, cash equivalents, and short-term investments, supported by cash flow from operations and available credit facilities.

Frequently Asked Questions

Revenue growth was primarily driven by an increase in average daily package volume across both domestic and international segments, alongside an increase in average revenue per piece. The international package segment, particularly export volumes, showed significant expansion, and the U.S. domestic ground segment also experienced a notable rebound in growth.

All segments showed improved operating profit. The U.S. domestic package segment saw a modest increase, while the International package segment experienced a substantial jump in operating profit (170.8% for the quarter), driven by strong revenue growth and yield improvements. The Non-package segment, including Supply Chain Solutions, also demonstrated significant operating profit growth (92.1% for the quarter).

UPS maintained a strong liquidity position with $4.1 billion in cash, cash equivalents, and marketable securities as of September 30, 2003. The company relies on its operating cash flow for liquidity and has access to significant credit facilities, including commercial paper programs and bank credit agreements, with minimal outstanding borrowings under these facilities at the end of the quarter.

The company is involved in a multi-district litigation proceeding related to excess value (EV) insurance premiums and has reached an agreement in principle for a global settlement, which is not expected to have a material effect on its financial condition. Additionally, UPS adopted several new accounting pronouncements during 2003, none of which were material to its financial results or condition.